A 35-Year Turbulent Journey: Panoramic Review of the Starting and Ending Points of China A-Share Bull Markets

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Since the birth of the Shanghai Securities Index in 1990, China’s A-share market has experienced several magnificent bull markets. Among them, the most representative three bull markets, with their starting and ending points clearly recording the market’s frenzy and silence.

What is the core driving force behind each bull market? What valuable lessons has history left for today’s investors?

Key Points

• China’s A-share market has experienced three major bull markets, each with its unique start and end.
• Policy support, institutional reforms, and abundant capital are the main forces driving A-share bull markets.
• The share-trading reform resolved market issues and propelled the major bull market from 2005 to 2007.
• Leveraged capital can rapidly push the market upward but also brings enormous risks.
• Investors should understand market cycles, focus on the driving factors of bull markets, and maintain rationality amid market fluctuations.

Cross-Century Tech-Network Bull Market (1996-2001)

This was the first complete major bull market experienced by China’s A-share market, with its long duration and huge gains leaving a profound impression on the first generation of shareholders. Although the seeds for this bull market were sown as early as 1994, its true main upward wave began in early 1996.

Shanghai Securities Index: From 512 Points to 2245 Points

The starting point of this bull market can be traced back to the 325 points at the end of July 1994, but the market entered long-term consolidation after a brief rebound. The real launch point was early 1996, when the Shanghai Securities Index started from 512 points and rose steadily with oscillations. After years of development, the rally exploded in acceleration in 1999. Ultimately, the Shanghai Securities Index reached a historical high of 2245 points on June 14, 2001, ending this cross-century bull market.

Core Drivers: Policy Rescue and Internet Wave

The formation of this bull market resulted from the combined action of internal and external factors.

1. Internal Policy Support: Starting in 1996, China’s central bank cut interest rates multiple times consecutively, injecting ample liquidity into the market. Warm policy winds created a fertile ground for the stock market reversal.
2. Global Tech-Network Frenzy: At that time, the world was swept by the internet bubble. The U.S. market fueled the tech wave through policies, such as the National Securities Markets Improvement Act of 1996, which greatly promoted capital formation.

On May 19, 1999, stimulated by an editorial published in official media, the market erupted in the famous “5·19 Rally.” Network tech stocks were frantically chased by capital, thoroughly igniting the market’s speculative enthusiasm and pushing the Shanghai Securities Index into the acceleration phase of the main upward wave.

Ending Reasons: Impact from State-Owned Share Reduction Plan

The end of the bull market also stemmed from a policy shift. In June 2001, regulatory authorities formally issued the “Interim Measures for the Administration of State-Owned Share Reduction.” This plan aimed to resolve the historical legacy of the split-share structure, but the market widely interpreted it as a massive stock “water pump.” Investors feared that large-scale share supply would severely impact existing market funds, causing market confidence to collapse instantly. Under panic selling, the Shanghai Securities Index turned downward, opening a four-year long bear market.

Share-Trading Reform Bull Market (2005-2007)

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After enduring a four-year bear market, the A-share market welcomed its most magnificent and deeply memorable major bull market in history. The foundation of this bull market stemmed from a profound institutional change.

Starting and Ending Points: From 998 Points to 6124 Points

On June 6, 2005, amid extreme pessimism, the market hit a historical low of 998 points, later known as the “start from scratch” point. With the formal launch of the share-trading reform, market confidence was fundamentally restored. The Shanghai Securities Index staged a decisive counterattack from the historical low of 998 points, embarking on a triumphant rise. In just over two years, the index surged to a historical peak of 6124 points on October 16, 2007, with cumulative gains exceeding 500%, setting an A-share historical record.

Core Driver: Institutional Reform Releasing Institutional Dividends

The core driving force of this bull market was clear and pure: the huge institutional dividends brought by the share-trading reform.

The share-trading reform is regarded as the most important institutional innovation in the history of China’s capital market. It fundamentally resolved the long-standing “same shares, different rights” problem plaguing the market.

The reform’s dividends were mainly released through the following aspects:

• Breaking Circulation Barriers: The reform converted previously non-circulating state-owned and legal person shares into tradable shares, unifying the interest base of all shareholders.
• Optimizing Corporate Governance: After large shareholders’ holdings became marketable assets, their interests aligned with those of small and medium investors. This incentivized management to strive for better company performance to pursue market value growth.
• Activating Market Value: The reform promoted information discovery through market-oriented negotiation of consideration, allowing companies’ intrinsic value to be revalued and released.

Ending Reasons: Overlap of Multiple Internal and External Pressures

When market sentiment reached its peak, risks quietly emerged. The end of this bull market resulted from the combined action of internal and external factors. Internally, China’s economy showed signs of overheating in 2007, with increasing inflationary pressure prompting macroeconomic policy to shift toward tightening. Regulators raised interest rates and reserve requirements multiple times consecutively, tightening market liquidity. Externally, the U.S. subprime crisis began to ferment, exposing systemic risks in global financial markets and severely impacting global investor confidence. Under dual internal and external pressures, the A-share market valuation bubble burst, the index fell from its high, and the bull market ended.

Leverage-Driven Reform Bull (2014-2015)

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Compared to the previous two bull markets, the 2014-2015 bull market was renowned for its astonishing speed and short cycle, vividly called a “fast bull” by the market. It profoundly demonstrated the enormous influence of capital, especially leveraged capital, on the market.

Starting and Ending Points: From 2050 Points to 5178 Points

This bull market began in July 2014, with the Shanghai Securities Index launching from around 2050 points. In less than a year, the index soared triumphantly, reaching a peak of 5178 points on June 12, 2015, with cumulative gains as high as 152%. However, this frenzy lasted only about 18 months, rising abruptly and falling suddenly.

Core Drivers: Reform Expectations and Leveraged Capital Entering the Market

The launch of this bull market stemmed from the market’s optimistic expectations for comprehensive deepening reforms. However, what truly pushed it to climax was the unprecedented scale of leveraged capital.

During 2014-2015, the rise in China’s stock market was closely related to high leverage and short-term oriented retail investor behavior. These investors often lacked in-depth understanding of company fundamentals, and their trading behavior itself became the main force driving stock prices upward.

Compared to margin financing provided by brokers (on-exchange leverage), the more frenzied was “off-exchange allocation” (off-exchange leverage) flowing into the market through trusts, P2P platforms, and other channels. These funds, with extremely high leverage ratios, injected massive “fuel” into the market while burying huge risk hazards.

Ending Reasons: Strong Regulatory Deleveraging

When the degree of market bubbling became increasingly severe, regulators sounded the “starting gun.” To prevent systemic financial risks, the China Securities Regulatory Commission (CSRC) began severely investigating illegal off-exchange allocation businesses. Regulatory authorities took multiple measures:

• Issued regulations to strictly manage shadow financing margin accounts previously outside regulation.
• Announced tightening of new shadow financing account regulations and required existing accounts not to exceed leverage limits.
• Raised margin trading requirements and fees, increasing the difficulty of off-exchange financing.

These strong deleveraging measures directly cut off the most important capital source for the bull market. Market liquidity rapidly dried up, forcing a large number of high-leverage accounts to liquidate, triggering chain-reaction selling. Ultimately, a dramatic market downturn declared the end of this leveraged bull market.

Reviewing the 35-year turbulent history of A-shares, the driving logic of bull markets presents a clear thread. Each bull market launch is inseparable from the “starting gun” role of key policies.

• Policy acts as the “starting gun,” such as pausing new share issuances or launching major reforms, pointing the direction for the market.
• Institutional reform is the “engine,” such as the share-trading reform, fundamentally releasing market vitality.
• Capital is the “fuel,” with ample liquidity and leveraged capital providing upward momentum for the rally.
• Fundamentals determine the bull market’s “ceiling,” ultimately returning to corporate value.

Early bull markets had obvious policy-driven characteristics, while later ones had more complex driving factors. Understanding these historical cycles can help investors build a long-term investment framework and maintain rationality amid market fluctuations.

FAQ

What signals are usually needed to start an A-share bull market?

History shows that key macroeconomic policies or major institutional reforms often serve as the “starting gun” for China’s A-share bull markets. For example, starting an interest rate cut cycle or launching the share-trading reform. These signals can effectively boost market confidence, guide capital into the market, and thus open a new rally.

Why do historical major bull markets ultimately end?

Bull market endings are often caused by multiple factors. Internal factors include macroeconomic policy shifting to tightening to curb economic overheating, and regulators actively cooling the market. When market valuations excessively detach from fundamentals, these factors can burst the bubble, leading to rally reversal.

What is the “share-trading reform”? Why is it so important?

The share-trading reform aimed to resolve the historical “same shares, different rights” problem in the A-share market. It converted previously non-circulating state-owned shares into tradable shares, unifying the interest base of all shareholders. This move greatly released institutional dividends and was the core engine of the 2005-2007 major bull market.

What can investors learn from historical bull-bear cycles?

From historical cycles, investors can learn the following:

• Understand Cycles: Recognize that markets are cyclical, and bull markets do not last forever.
• Focus on Driving Forces: Analyze the fundamental drivers of each rally, whether policy, institution, or capital.
• Maintain Rationality: Stay vigilant during market frenzy and see opportunities in extreme pessimism.